Link between consumer spending and the health of an economy?
December 13th, 2011 | 
Author: Question by Sithara B: Link between consumer spending and the health of an economy?
Today [13 August 2011] an AP article noted, “Shoppers lift economy but will they keep spending?”
http://news.yahoo.com/shoppers-lift-economy-keep-spending-210516514.html
I’m wary of claims that increased consumer spending improves GDP (and the economy). Two reasons:
1. Most consumers are deep in debt…so, they go further in debt to ‘spend’ – how does this improve an economy that is deep in debt?
2. most products are not made in the US, so, how does the purchase of non-US products by consumers improve the US economy?
People state that one can gauge the seriousness of US debt by comparing our the level of our debt with our GDP. But if GDP consists of 80% consumer spending, and a great deal of that is driven by debt for the purchase or foreign products, it seems to me that the comparison is very flawed.
Best answer:
Answer by SDD
Consumers incurring more debt to improve the “health” of the economy is like a drunk having a glass of vodka when he wakes up in the morning. He might feel a little better, but his actual health is still deteriorating. The real health of the economy will not improve until balance sheets (personal and government) are restored to manageable levels. It will take years for that to happen.
Know better? Leave your own answer in the comments!
Popular Posts:
- Stocks Posting Sharp Losses In Early Afternoon Trading – U.S. Commentary
- TIer 5 Unemployment Extension Update 05/15/2010
- How does one qualify to receive the FED-ED unemployment insurance extension in California?
- NCESC Unemployment Benefits – www.ncesc.com « Breaking News
- How can i get money?I am a jobless person and don’t have any source of income with me.?
Tags:
You’re right. Even Keynes stated clearly that marginal propensity to import is a leak.It will lessen the multiplier effect. But debts are not a concern. The government should borrow more during recession or when the consumer confidence is down. Because during recession, private investors and consumers will stop spending. That is the main cause of the negative growth rate of GDP. So in fact,we can have more debts to spend during the recession.